Scott Tucker Nears Trial for Payday Loan Rent-a-Tribe Scheme
A New York federal district court is preparing to hear the trial of payday-lender-turned-race-car-driver Scott Tucker beginning September 11th. Last year, federal district attorneys brought a $2 billion action against Tucker and his business associate, Timothy Muir, for alleged violations of the Racketeer Influenced and Corrupt Organizations (RICO) Act and the Truth in Lending Act (TILA) stemming from the issuance of payday loans in violation of state usury caps. To skirt state loan interest caps, Tucker entered into agreements with three federally-recognized tribes- the Miami Tribe of Oklahoma, Santee Sioux of Nebraska, and Modoc Tribe of Oklahoma. In exchange for one percent of the profits from the payday lending operations, the tribes agreed to provide Tucker’s businesses with sovereign immunity.
In general, tribes are permitted to impute sovereign immunity on tribally-owned businesses and political subdivisions of the tribal government. Courts analyze these arrangements under “arm of the tribe” tests to ensure there is a sufficient connection between the tribal government and the entity to warrant transfer of immunity. Courts across the nation have consistently found the arrangement between Scott Tucker and his partner tribes to be lacking in the financial and operational considerations necessary to cloak Tucker’s lending operations in tribal sovereign immunity. This leaves Tucker exposed to potential allegations of state law violations and fraudulent business schemes under RICO. The fraudulent business scheme included Tucker preparing false statements for tribal officials to use during state court trials, opening bank accounts in the tribe’s name but controlled by Tucker, and employees falsely informing borrowers that the business was operating on tribal lands, even going so far as to provide weather reports to borrowers to better convince them of the location of operations.
The Miami Tribe of Oklahoma has already returned $48 million in profits and acceded to a non-prosecution agreement with the U.S. Department of Justice. In stark contrast to the current situation involving Tucker and his former tribal business partners, NAFSA members abide by a strict set of industry best practices that include a number of provisions allowing NAFSA member tribal lending entities (TLEs) to properly adhere to arm of the tribe analyses time and time again. Tucker’s trial has the potential to put to rest a business model that is far from sustainable and help tribes enter a new era of lending.